DECEMBER 4, 2008

The automobile industry holds its breath

While Formula 1 teams meet in London to discuss rule changes for 2010 and beyond, including the thorny question of standardised engined, there are far more important things going on in the United States where General Motors, Ford and Chrysler appear in front of Congress trying to win a $34 billion loan package from the US government. GM needs $4bn to avoid going out of business before the end of the year - in three weeks time.. Chrysler is also warning that it could go bust. GM's Rick Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli drove to Washington in fuel-efficient hybrids and all have agreed to cut their salaries to $1 a year if they get the federal loans. The Big Three car companies employ around 740,000 people across the United States, mainly in dealerships. The situation is now so bad that the United Auto Workers union has even agreed to modify contracts in order to help cost-saving. There are some who argue that the best move for all three companies would be bankruptcy as this would rid the companies of their debts and other pension obligations and allow them to start again with new working agreements but the companies are worried that people will not buy cars from bankrupt automakers because of concerns over warranties and the resale value of cars. It is also not clear whether the three would be able to find the money to run after bankruptcy as there is very little credit available from banks. Car sales have plunged since the economic crisis began and everyone is suffering, even the successful firms like Toyota and Honda. Cuts are being made throughout the industry. but demand for new cars is low and this year's US sales are expected to be around 10m, rather than the 16.1m that were sold in 2007.